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Post Properties, Inc. and its subsidiaries develop, own and manage upscale multi-family apartment communities in selected markets in the United States. As used in this report, the term â€śCompanyâ€ť includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the â€śOperating Partnershipâ€ť), unless the context indicates otherwise. The Company, through its wholly-owned subsidiaries, is the general partner and owns a majority interest in the Operating Partnership which, through its subsidiaries, conducts substantially all of the on-going operations of the Company. At December 31, 2012, approximately 31.5%, 22.6%, 13.9% and 10.1% (on a unit basis) of the Companyâ€™s operating communities were located in the Atlanta, Georgia, Dallas, Texas, the greater Washington, D.C. and Tampa, Florida metropolitan areas, respectively. At December 31, 2012, the Company had interests in 22,218 apartment units in 60 communities, including 1,471 apartment units in four communities held in unconsolidated entities and 2,046 apartment units at seven communities currently under development or in lease-up. The Company is also selling luxury for-sale condominium homes in two communities through a taxable REIT subsidiary. The Company is a fully integrated organization with multi-family development, operations and asset management expertise. The Company has approximately 625 employees, 16 of whom are parties to a collective bargaining agreement.

The Company is a self-administrated and self-managed equity real estate investment trust (a â€śREITâ€ť). A REIT is a legal entity which holds real estate interests and is generally not subject to federal income tax on the income it distributes to its shareholders.

The Companyâ€™s and the Operating Partnershipâ€™s executive offices are located at 4401 Northside Parkway, Suite 800, Atlanta, Georgia 30327 and their telephone number is (404) 846-5000. Post Properties, Inc., a Georgia corporation, was incorporated on January 25, 1984, and is the successor by merger to the original Post Properties, Inc., a Georgia corporation, which was formed in 1971. The Operating Partnership is a Georgia limited partnership that was formed in July 1993 for the purpose of consolidating the operating and development businesses of the Company and the Post Â® apartment portfolio described herein.
The Operating Partnership

The Operating Partnership, through the operating divisions and subsidiaries described below, is the entity through which all of the Companyâ€™s operations are conducted. At December 31, 2012, the Company, through wholly-owned subsidiaries, controlled the Operating Partnership as the sole general partner and as the holder of 99.7% of the common units in the Operating Partnership (the â€śCommon Unitsâ€ť) and 100% of the preferred units (the â€śPerpetual Preferred Unitsâ€ť). The other limited partners of the Operating Partnership who hold Common Units are those persons who, at the time of the Companyâ€™s initial public offering, elected to hold all or a portion of their interests in the form of Common Units rather than receiving shares of common stock. Holders of Common Units may cause the Operating Partnership to redeem any of their Common Units for, at the option of the Operating Partnership, either one share of Common Stock or cash equal to the fair market value thereof at the time of such redemption. The Operating Partnership presently anticipates that it will cause shares of common stock to be issued in connection with each such redemption (as has been done in all redemptions to date) rather than paying cash. With each redemption of outstanding Common Units for common stock, the Companyâ€™s percentage ownership interest in the Operating Partnership will increase. In addition, whenever the Company issues shares of common or preferred stock, the Company will contribute any net proceeds to the Operating Partnership, and the Operating Partnership will issue an equivalent number of Common Units or Perpetual Preferred Units, as appropriate, to the Company.

As the sole shareholder of the Operating Partnershipâ€™s sole general partner, the Company has the exclusive power under the limited partnership agreement of the Operating Partnership to manage and conduct the business of the Operating Partnership, subject to the consent of a majority of the outstanding Common Units in connection with the sale of all or substantially all of the assets of the Operating Partnership or in connection with a dissolution of the Operating Partnership. The board of directors of the Company manages the affairs of the Operating Partnership by directing the affairs of the Company. In general, the Operating Partnership cannot be terminated, except in connection with a sale of all or substantially all of the assets of the Company, until January 2044 without the approval of each limited partner who received Common Units of the Operating Partnership in connection with the Companyâ€™s initial public offering. The Companyâ€™s indirect limited and general partner interests in the Operating Partnership entitle it to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to the Companyâ€™s percentage interest in the Operating Partnership and indirectly entitle the Company to vote on all matters requiring a vote of the Operating Partnership.

As part of the formation of the Operating Partnership, a holding company, Post Services, Inc. (â€śPost Servicesâ€ť) was organized as a separate corporate subsidiary of the Operating Partnership. Through Post Services and its subsidiaries, the Operating Partnership owns and sells for-sale condominium homes and provides other services to third parties. Post Services is a â€śtaxable REIT subsidiaryâ€ť as defined in the Internal Revenue Code of 1986, as amended. The Operating Partnership owns 100% of the voting and nonvoting common stock of Post Services, Inc.

Business Strategy

The Companyâ€™s mission is to deliver superior satisfaction and value to its residents, associates and investors, with a vision to be the first choice in quality multi-family living. Key elements of the Companyâ€™s business strategy, as may be adjusted from time to time in response to current conditions in the capital markets and the U.S. economy discussed later, are as follows:

Investment, Disposition and Acquisition Strategy

The Companyâ€™s investment, disposition and acquisition strategy is aimed to achieve a real estate portfolio that has uniformly high quality, low average age properties and cash flow diversification. The Companyâ€™s plans to achieve its objectives have included reducing its asset concentration in Atlanta, Georgia, while at the same time, building critical mass in other core markets where it may currently lack the portfolio size to achieve operating efficiencies and the full value of the Post Â® brand.

The Company is focusing on a limited number of major cities and has regional value creation capabilities. The Company has investment and development personnel to pursue acquisitions, development, rehabilitations and dispositions of apartment communities that are consistent with its market strategy. The Companyâ€™s value creation capabilities include the regional value creation teams in Atlanta, Georgia (focusing on the Southeast and the mid-Atlantic markets and New York, New York) and Dallas, Texas (focusing on the Southwest, currently limited to the Texas market). The Company operates in nine markets as of December 31, 2012; however, the Companyâ€™s first community in the Raleigh, North Carolina market is currently under construction and is expected to begin delivering units in early 2013.

Key elements of the Companyâ€™s investment and acquisition strategy include instilling a disciplined team approach to development and acquisition decisions and selecting sites and properties in infill suburban and urban locations in strong primary markets that serve the higher-end multi-family consumer. The Company plans to develop, construct and continually maintain and improve its apartment communities consistent with quality standards management believes are synonymous with the Post Â® brand. New acquisitions will be limited to properties that meet, or that are expected to be repositioned and improved to meet, its quality and location requirements.

Post Â® Brand Name Strategy

The Post Â® brand name has been cultivated for more than 40 years, and its promotion has been integral to the Companyâ€™s success. Company management believes that the Post Â® brand name is synonymous with quality upscale apartment communities that are situated in desirable locations and that provide a high level of resident service. The Company believes that it provides its residents with a high level of service, including attractive landscaping and numerous amenities, including controlled access, high-speed connectivity, on-site business centers, on-site courtesy officers, urban vegetable gardens and fitness centers at a number of its communities.

Key elements in implementing the Companyâ€™s brand name strategy include extensively utilizing the trademarked brand name and coordinating its advertising programs to increase brand name recognition. During recent years, the Company implemented new internet-based marketing, started new customer service programs designed to maintain high levels of resident satisfaction and provided employees and residents new opportunities for community involvement, all intended to enhance what it believes is a valuable asset.

Service and Associate Development Strategy

The Companyâ€™s service orientation strategy includes utilizing independent third parties to periodically measure resident satisfaction and providing performance incentives to its associates linked to delivering a high level of service and enhancing resident satisfaction. The Company also achieves its objective by investing in the development and implementation of training programs focused on associate development, improving the quality of its operations and the delivery of resident service.

Operating Strategy

The Companyâ€™s operating strategy includes striving to be an innovator and a leader in anticipating customer needs while achieving operating consistency across its properties. The Company also will continue to explore opportunities to improve processes and technology that drive efficiency in its business.

Financing and Liquidity Strategy

The Companyâ€™s financing and liquidity strategy has been to maintain a strong balance sheet and to maintain its investment grade credit rating. The Companyâ€™s plans to achieve its objectives have included generally limiting total effective leverage (debt and preferred equity) as a percentage of undepreciated real estate assets to not more than 55%, generally limiting variable rate indebtedness as a percentage of total indebtedness to not more than 25% and maintaining adequate liquidity through available cash and its unsecured lines of credit. At December 31, 2012, the Companyâ€™s total effective leverage (debt and preferred equity) as a percentage of undepreciated real estate assets, and its total variable rate indebtedness as a percentage of total indebtedness were below these percentages.

Operating Divisions

The major operating divisions of the Company include Post Apartment Management, Post Construction and Property Services, Post Investment Group and Post Corporate Services. Each of these operating divisions is discussed below.

Post Apartment Management

Post Apartment Management is responsible for the day-to-day operations of all Post Â® communities including community leasing and property management. Post Apartment Management also conducts short-term corporate apartment leasing activities and is the largest division in the Company (based on the number of employees).

Post Construction and Property Services

Post Construction and Property Services are responsible for overseeing all construction and physical asset maintenance activities of the Company for all Post Â® communities.

Post Investment Group

Post Investment Group is responsible for all development, acquisition, rehabilitation, disposition, for-sale (condominium) and asset management activities of the Company. For development, this includes site selection, zoning and regulatory approvals and project design. This division is also responsible for apartment community acquisitions as well as property dispositions and strategic joint ventures that the Company undertakes as part of its investment strategy. The division recommends and executes major value added renovations and redevelopments of existing communities.
Post Corporate Services

Post Corporate Services provides executive direction and control to the Companyâ€™s other divisions and subsidiaries and has responsibility for the creation and implementation of all Company financing, capital and risk management strategies. All accounting, management reporting, compliance, information systems, human resources, personnel recruiting, training and development, legal, security, risk management and insurance services required by the Company and all of its affiliates are centralized in Post Corporate Services.

Operating Segments

The Post Apartment Management division of the Company manages the owned apartment communities based on the operating segments associated with the various stages in the apartment ownership lifecycle. The Companyâ€™s primary operating segments are described below. In addition to these segments, all commercial properties and other ancillary service and support operations are reviewed and managed separately and in the aggregate by Company management.

â€˘
Fully stabilized (same store) communities - those apartment communities which have been stabilized (the earlier of the point at which a property reaches 95% occupancy or one year after completion of construction) for both the current and prior year.

â€˘
Communities stabilized during prior year - communities which reached stabilized occupancy in the prior year.

â€˘
Development and lease-up communities - those communities that are under development, rehabilitation and in lease-up but were not stabilized by the beginning of the current year, including communities that stabilized during the current year.

â€˘
Acquired communities - those communities acquired in the current or prior year.

CEO BACKGROUND

Our bylaws provide that at least three and no more than 15 directors shall constitute the full board of directors. Currently, our board of directors consists of nine members. The term of each of our directors expires at the 2013 Annual Meeting.

Upon the recommendation of our independent Nominating and Corporate Governance Committee, the board of directors has nominated incumbent directors Robert C. Goddard, III, David P. Stockert, Herschel M. Bloom, Walter M. Deriso, Jr., Russell R. French, Ronald de Waal and Donald C. Wood to stand for re-election at the Annual Meeting and to hold office until our 2014 Annual Meeting of Shareholders or when his respective successor is elected and qualified.

Mss. Thayer and Reiss are not standing for reelection at the Annual Meeting. We thank Mss. Thayer and Reiss for their many years of service on our board of directors. The size of our board of directors will be reduced to seven members immediately following the Annual Meeting.

Biographical information about our nominees for director and the experience, qualifications, attributes and skills considered by our Nominating and Corporate Governance Committee and the board of directors in determining that the nominee should serve as a director appears below. For additional information about how we identify and evaluate nominees for director, see â€śSelection of Director Nomineesâ€ť below.

Nominees for Election
Robert C. Goddard, III has been a director of Post Properties since May 2002 and Chairman of our board of directors since February 2003. Since July 2000, Mr. Goddard has been Chairman and Chief Executive Officer of Goddard Investment Group, LLC, a commercial real estate investment firm focusing in the Atlanta, Dallas, Houston, Denver and Miami markets. From 1988 to December 2000, Mr. Goddard served as Chairman and Chief Executive Officer of the NAI/Brannen Goddard Company, a real estate firm. He is currently a member of the Board of Trustees of Emory University. Mr. Goddard is 58 years old.

We believe that Mr. Goddardâ€™s experience of over 30 years in the real estate industry, knowledge of our core markets, and experience as Chairman and Chief Executive Officer of other significant real estate businesses qualify him to serve as a director and Chairman of our Board.

David P. Stockert has been a director of Post Properties since May 2002. Since July 2002, Mr. Stockert has been President and Chief Executive Officer of Post Properties. From January 2001 to June 2002, Mr. Stockert served as Post Propertiesâ€™ President and Chief Operating Officer. From July 1999 to October 2000, Mr. Stockert was Executive Vice President of Duke Realty Corporation, a publicly traded real estate company. From June 1995 to July 1999, Mr. Stockert was Senior Vice President and Chief Financial Officer of Weeks Corporation, also a publicly traded real estate company that was a predecessor by merger to Duke Realty Corporation. Prior to joining Weeks Corporation, Mr. Stockert worked as an investment banker and as a certified public accountant. Mr. Stockert is 50 years old.

We believe that Mr. Stockertâ€™s 20 year real estate career, including his experience as a senior officer with public real estate companies and his service as our Chief Executive Officer, qualifies him to serve as a director.

Herschel M. Bloom has been a director of Post Properties since May 1994. Mr. Bloom is a retired partner from the law firm of King & Spalding LLP. Mr. Bloomâ€™s practice was focused on corporate, partnership and real estate tax matters. Mr. Bloom was a partner with King & Spalding LLP for over 33 years until his retirement in April 2008. From 1986 to 2006, Mr. Bloom also served as a director of Russell Corporation. Mr. Bloom is 70 years old.
We believe Mr. Bloomâ€™s extensive experience as a practicing tax lawyer counseling on real estate concerns and public REITs and service on another public company board qualify him to serve as a director.

Walter M. Deriso, Jr. has been a director of Post Properties since May 2004. Mr. Deriso currently serves as Chairman of the Board of Atlantic Capital Bancshares, Inc. and of its subsidiary, Atlantic Capital Bank, a commercial banking and financial services company, and has held these positions since August 2006. From 1997 to February 2005, Mr. Deriso served as Vice Chairman of Synovus Financial Corp., a diversified financial services company. Mr. Deriso held various offices with Security Bank and Trust Company of Albany, a subsidiary of Synovus, beginning in 1991 and served as Chairman of the Board from 1997 to 2006. Mr. Deriso was a practicing attorney with the firm of Divine, Wilkin, Deriso, Raulerson & Fields from 1972 to 1991. In addition, Mr. Deriso has served on the boards of numerous organizations, including as Chairman of the Georgia Bankers Association, Chairman of the Program Management Team of the Georgia Rail Passenger Program and a member of the Board of Visitors of Emory University. He is currently a member of the Board of Trustees of Emory University, Chairman of the Board of the Georgia Regional Transportation Authority and a member of the board of directors of the Georgia Chamber of Commerce. Mr. Deriso is 66 years old.

We believe Mr. Derisoâ€™s leadership background, roles with companies in the financial services sector, including his service on a public company board, his experience in finance, business operations and in evaluating real estate assets, and his experience as a practicing attorney, qualify him to serve as a director. We also value Mr. Derisoâ€™s contributions as one of the audit committee financial experts on our board of directors.

Russell R. French has been a director of Post Properties since July 1993. He is currently a special limited partner of Moseley & Co. VI, LLC and has held this position since 2007. Mr. French is a retired venture capitalist and was previously a member of Moseley & Co. III and a partner of Moseley & Co. II, positions he had held for more than five years. In addition, Mr. French has been a member of MKFJ-IV, LLC since 1998 and a member of Moseley & Co. V, LLC since 2000. Each of Moseley & Co. III, MKFJ-IV, LLC and Moseley & Co. V, LLC is the general partner of a venture capital fund. In addition, Mr. French is a member of the Board of Trustees of Emory University and a former member of the board of directors of the Georgia Tech/Emory Biomedical Engineering Department. Mr. French is also a former director of the Georgia Research Alliance. Mr. French is 67 years old.

We believe Mr. Frenchâ€™s experience in evaluating and understanding businesses across a range of industries and his financial background qualify him to serve as a director. We also value Mr. Frenchâ€™s contributions as one of the audit committee financial experts on our board of directors.

Ronald de Waal has been a director of Post Properties since May 2000. Mr. de Waal is Chairman of the Board of WE International b.v., a Netherlands corporation that operates fashion specialty stores in Belgium, the Netherlands, Switzerland, Germany and France, and has held this position since 1983.

Mr. de Waal is also Chairman of Ronus Inc., an Atlanta-based real estate company which develops and manages mixed-use real estate properties. Mr. de Waal was a director of Saks Incorporated and The Body Shop International plc (England) within the last five years. Mr. de Waal is 61 years old.

We believe Mr. de Waalâ€™s experience as Chairman of the Board of a large, global business enterprise, knowledge of the real estate industry, including as Chairman of an Atlanta-based real estate company, and prior service on other public company boards qualify him to serve as a director.

Donald C. Wood has been a director of Post Properties since May 2011. Mr. Wood has been the President and Chief Executive Officer of Federal Realty Investment Trust, a publicly traded real estate investment trust, since January 2003, and prior to that time, served in various officer positions with Federal, including President and Chief Operating Officer (from 2001 to 2003), Senior Vice President and Chief Operating Officer (from 2000 to 2001), Senior Vice President-Chief Operating Officer and Chief Financial Officer (from 1999 to 2000) and Senior Vice President-Treasurer and Chief Financial Officer (from 1998 to 1999). Mr. Wood is also a member of the Board of Trustees of Federal Realty Investment Trust, a member of the Board and former Chairman of the National Association of Real Estate Investment Trusts and a director of the Real Estate Roundtable. Mr. Wood is 52 years old.

We believe Mr. Woodâ€™s extensive experience in the real estate industry, knowledge of our markets and leadership experience as chief executive officer of a publicly traded real estate investment trust qualify him to serve as a director.

The board of directors recommends a vote FOR the seven directors nominated by the board and listed in this Proxy Statement.

MANAGEMENT DISCUSSION FROM LATEST 10K

Company Overview

Post Properties, Inc. and its subsidiaries develop, own and manage upscale multi-family communities in selected markets in the United States. As used in this report, the term â€śCompanyâ€ť includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P. (the â€śOperating Partnershipâ€ť), unless the context indicates otherwise. The Company, through its wholly-owned subsidiaries is the general partner and owns a majority interest in the Operating Partnership which, through its subsidiaries, conducts substantially all of the on-going operations of the Company. At December 31, 2012, the Company had interests in 22,218 apartment units in 60 communities, including 1,471 apartment units in four communities held in unconsolidated entities and 2,046 apartment units at seven communities currently under development or in lease-up. The Company is also selling luxury for-sale condominium homes in two communities through a taxable REIT subsidiary. At December 31, 2012, approximately 31.5%, 22.6%, 13.9% and 10.1% (on a unit basis) of the Companyâ€™s operating communities were located in the Atlanta, Georgia, Dallas, Texas, the greater Washington, D.C. and Tampa, Florida metropolitan areas, respectively.
The Company has elected to qualify and operate as a self-administrated and self-managed real estate investment trust (â€śREITâ€ť) for federal income tax purposes. A REIT is a legal entity which holds real estate interests and is generally not subject to federal income tax on the income it distributes to its shareholders.

At December 31, 2012, the Company owned approximately 99.7% of the common limited partnership interests (â€śCommon Unitsâ€ť) in the Operating Partnership. Common Units held by persons other than the Company represented a 0.3% common minority interest in the Operating Partnership.

Operations Overview

The following discussion provides an overview of the Companyâ€™s operations, and should be read in conjunction with the more full discussion of the Companyâ€™s operating results, liquidity and capital resources and risk factors reflected elsewhere in this Form 10-K.

Property Operations

A gradually improving economy in the United States, favorable demographics and a relatively modest new supply of multi-family units to date during the recent real estate cycle have contributed to improved apartment fundamentals in the Companyâ€™s markets since 2010. As a result, year-over-year same store revenues and net operating income (â€śNOIâ€ť) increased by 7.0% and 8.7%, respectively, in 2012, as compared to 2011. The Companyâ€™s operating results for 2012 and its outlook for 2013 are more fully discussed in the â€śResults of Operationsâ€ť and â€śOutlookâ€ť sections below. The Companyâ€™s outlook for 2013 is based on the expectation that economic and employment conditions will continue to gradually improve. However, there continues to be significant risks and uncertainty in the economy and the unemployment rate continues to be higher than normal. If the economic recovery was to stall or U.S. economic conditions were to worsen, the Companyâ€™s operating results would be adversely affected. Furthermore, development of new multi-family rental units has continued to increase, and over time, the Company expects that this will increase the competitive supply of rental units in the markets in which it operates.

Acquisition Activity

In July 2012, the Company acquired Post South Endâ„˘, a 360-unit apartment community located in Charlotte, North Carolina for a purchase price of approximately $74,000. The community was completed in 2009, and also includes 7,612 square feet of retail space. In December 2011, the Company acquired Post Katy Trailâ„˘, a 227-unit apartment community located in Uptown Dallas, Texas for a purchase price of $48,500. The community was completed in 2010 and includes 9,080 square feet of retail space. Operating results for 2012 and 2011 include revenues of $7,101 and $117, respectively, and net operating income of $4,207 and $70, respectively, from these communities.

Development Activity

The Company is currently developing seven communities: (1) the second phase of its Post Carlyle Squareâ„˘ apartment community in Alexandria, Virginia, planned to consist of 344 apartment units with a total estimated development cost of approximately $87,000, which began delivering units in the second quarter of 2012 and was 55.8% leased as of February 15, 2013, (2) its Post South Lamarâ„˘ apartment community in Austin, Texas, planned to consist of 298 apartment units and approximately 9,263 square feet of retail space with a total estimated development cost of approximately $41,700 which began delivering units in the third quarter of 2012 and was 52.7% leased as of February 15, 2013, (3) the third phase of its Post Midtown Square Â® apartment community in Houston, Texas, planned to consist of 124 apartment units and approximately 10,358 square feet of retail space with a total estimated development cost of approximately $21,800 which began leasing units in the fourth quarter of 2012 and was 53.2% leased as of February 15, 2013, (4) its third phase of its Post Lake Â® at Baldwin Park apartment community in Orlando, Florida, planned to consist of 410 luxury apartment units with a total estimated development cost of approximately $58,600, (5) its Post Parksideâ„˘ at Wade apartment community, which marks the Companyâ€™s first development in Raleigh, North Carolina, planned to consist of 397 apartment units, and approximately 14,908 square feet of retail space, with a total estimated development cost of approximately $55,000, (6) its Post Richmond Avenueâ„˘ apartment community in Houston, Texas, planned to consist of 242 apartment units with an estimated development cost of approximately $34,300 and (7) its Post Soho Squareâ„˘ apartment community in Tampa, Florida, planned to consist of 231 apartment units and approximately 10,556 square feet of retail space with a total estimated development cost of approximately $39,800. The square footage amounts are approximate and actual amounts may vary. The Company currently expects to utilize available cash, available borrowing capacity under its unsecured bank credit facilities, or other indebtedness, as well as net proceeds from on-going condominium sales and its at-the-market common equity sales program to fund future estimated construction expenditures.

In addition, the Company may commence development activities at more of its existing land sites over the next year or so. Management believes, however, that the timing of such development starts will depend largely on a continued favorable outlook for multi-family apartment rentals, capital market conditions and the U.S. economy. Until such time as additional development activities commence or certain land positions are sold, the Company expects that operating results will be adversely impacted by costs of carrying land held for future investment or sale. There can be no assurance that land held for investment will be developed in the future or at all. Although the Company does not believe that any impairment exists at December 31, 2012, should the Company change its expectations regarding the timing and projected undiscounted future cash flows expected from land held for future investment, or the estimated fair value of its assets, the Company could be required to recognize impairment losses in future periods.

Condominium Activity

The Company has two luxury condominium development projects which began closing sales of completed units in 2010: The Ritz-Carlton Residences, Atlanta Buckhead (the â€śAtlanta Condominium Projectâ€ť), consisting of 129 units, and the Four Seasons Private Residences, Austin (the â€śAustin Condominium Projectâ€ť), consisting of 148 units. The Company does not expect to further engage in the for-sale condominium business in future periods, other than with respect to completing the sell-out of units at these two projects. The Companyâ€™s intention over time is to liquidate its investment in these two condominium projects and to redeploy the invested capital back into its core apartment business.

The Companyâ€™s investment in for-sale condominium housing exposes the Company to additional risks and challenges, including potential future losses or additional impairments, which could have an adverse impact on the Companyâ€™s business, results of operations and financial condition. See Item 1A, â€śRisk Factorsâ€ť in this Form 10-K for a discussion of these and other Company risk factors. Specifically, the condominium market has been adversely impacted in recent years by the overall weakness in the U.S. economy and residential housing markets, and tighter credit markets for home purchasers, which the Company believes has negatively impacted the ability of some prospective condominium buyers to qualify for mortgage financing. These conditions resulted in the Company recording impairment charges in 2010 and 2009 at its two luxury condominium projects as described below. Although certain of the above-described condominium market conditions remain, the Company has noted that the pace of condominium sales activity has increased moderately during 2012 and is expected to persist into 2013.

As of February 15, 2013, the Company had three units under contract and 129 units closed at the Austin Condominium Project and had 19 units under contract and 85 units closed at the Atlanta Condominium Project. Units â€śunder contractâ€ť include all units currently under contract. However, the Company has experienced contract terminations in these and other condominium projects when units become available for delivery and may experience additional terminations in connection with these projects. Accordingly, there can be no assurance that units under contract will actually close.

At December 31, 2012, the Companyâ€™s investment in these two condominium projects totaled $23,281 as reflected on its consolidated balance sheet.

Risk of future condominium impairment losses

The Company recorded impairment losses in prior years related to the Austin Condominium Project and the Atlanta Condominium Project. The Company recorded a $34,691 impairment charge in 2010 at the Austin Condominium Project and, in the aggregate, recorded $89,883 of impairment charges in 2009 and 2010 at the Atlanta Condominium Project and an adjacent land site. The Company evaluated the fair value of the Austin Condominium Project and the Atlanta Condominium Project as of December 31, 2012, and determined that no additional impairment existed as of that date. The model assumptions used to determine the fair value of these projects were based on current cash flow projections over the remaining expected sell-out periods and using market discount rates, which reflect the current status of sales, sales prices and other market factors at each of the condominium projects. There can be no assurance that the Companyâ€™s cash flow projections will not change in future periods and that the estimated fair value of the Austin Condominium Project and the Atlanta Condominium Project will not change materially as a consequence, causing the Company to possibly record additional impairment charges in future periods.

The following discussion should be read in conjunction with the selected financial data and with all of the accompanying consolidated financial statements appearing elsewhere in this report. This discussion is combined for the Company and the Operating Partnership as their results of operations and financial condition are substantially the same except for the effect of the 0.3% weighted average common minority interest in the Operating Partnership. See the summary financial information in the section below titled, â€śResults of Operations.â€ť

Results of Operations

The following discussion of results of operations should be read in conjunction with the consolidated statements of operations, the accompanying selected financial data and the community operations/segment performance information included below.

The Companyâ€™s revenues and earnings from continuing operations are generated primarily from the operation of its apartment communities. For purposes of evaluating comparative operating performance, the Company categorizes its operating apartment communities based on the period each community reaches stabilized occupancy. The Company generally considers a community to have achieved stabilized occupancy on the earlier to occur of (1) attainment of 95% physical occupancy on the first day of any month or (2) one year after completion of construction.

For the year ended December 31, 2012, the Companyâ€™s portfolio of operating apartment communities, excluding four communities held in unconsolidated entities, consisted of the following: (1) 50 communities that were completed and stabilized for all of 2012 and 2011 (same store communities), (2) one community and a portion of two communities in lease-up during 2012, and (3) two communities acquired in 2012 and 2011. There were no apartment communities classified as held for sale in discontinued operations at December 31, 2012.

The Company has adopted an accounting policy related to communities in the lease-up stage whereby substantially all operating expenses (including pre-opening marketing, and management and leasing personnel expenses) are expensed as incurred. During the lease-up phase, the sum of interest expense on completed units and other operating expenses (including pre-opening marketing, management and leasing personnel expenses) will initially exceed rental revenues, resulting in a â€ślease-up deficit,â€ť which continues until such time as rental revenues exceed such expenses. The lease-up deficits in 2012, 2011 and 2010 were approximately $1,985, $0 and $4,838, respectively.

In order to evaluate the operating performance of its communities for the comparative years listed below, the Company has presented financial information which summarizes the rental and other revenues, property operating and maintenance expenses (excluding depreciation and amortization) and net operating income on a comparative basis for all of its operating communities and for its stabilized operating communities. Net operating income is a supplemental non-GAAP financial measure. The Company believes that the line on the Companyâ€™s consolidated statement of operations entitled â€śnet incomeâ€ť is the most directly comparable GAAP measure to net operating income. Net operating income is reconciled to GAAP net income in the financial information accompanying the tables. The Company believes that net operating income is an important supplemental measure of operating performance for a REITâ€™s operating real estate because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs and general and administrative expenses. This measure is particularly useful, in the opinion of the Company, in evaluating the performance of geographic operations, operating segment groupings and individual properties. Additionally, the Company believes that net operating income, as defined, is a widely accepted measure of comparative operating performance in the real estate investment community.

Comparison of the year ended December 31, 2012 to the year ended December 31, 2011

The Operating Partnership reported net income available to common unitholders of $80,468 in 2012, compared to $19,316 in 2011. The Company reported net income available to common shareholders of $80,251 in 2012, compared to $19,254 in 2011. As discussed below, the additional income between periods primarily reflects increased net operating income from fully stabilized communities, increased net operating income from lease-up and acquisition communities, increased gains on condominium sales, increased equity in earnings from unconsolidated entities resulting primarily from the gain on the sale of an unconsolidated apartment community and lower interest expense between periods.

Rental and other revenues from property operations increased $29,663 or 9.7% from 2011 to 2012 primarily due to increased revenues from the Companyâ€™s fully stabilized communities of $19,756 or 7.0% and increased revenues of $6,984 from acquisition communities and increased revenues of $1,779 from development and lease-up communities. The revenue increase from fully stabilized communities is discussed more fully below. The revenue increase from acquisition communities in 2012 reflects the acquisition of one apartment community in December 2011 and one community in July 2012. The revenue increase from development and lease-up communities reflects the lease-up of portions of three communities as apartment units were completed in 2012. The remaining revenue increase of $1,144 primarily reflects increased revenues from commercial properties due to the acquisition of additional retail space at the mixed-use communities acquired in December 2011 and July 2012 and due to the lease-up of recently developed commercial space.

Property operating and maintenance expenses (exclusive of depreciation and amortization) increased $11,268 or 8.5% from 2011 to 2012 primarily due to increased expenses from fully stabilized communities of $4,912 or 4.4%, increased expenses of $2,847 from acquisition communities, increased expenses of $1,784 from development and lease-up communities and increased expenses in other segment expense, including corporate property management expenses, of $1,725 or 8.0%. The expense increase from fully stabilized communities is discussed below. The expense increase from acquisition communities reflects the acquisition of one apartment community in December 2011 and one community in July 2012. The expense increase from lease-up communities reflects the initial personnel and marketing costs associated with the initial lease-up of portions of three development communities. The expense increase from other property segments primarily reflects increased corporate property management expenses of $987 resulting from modest increases in annual salaries and estimated cash incentive plan accruals, small headcount increases in the property services supervisory team in 2011 and increased net employee termination costs in 2012. Additionally, the increase is due to increased employee termination costs at the Companyâ€™s corporate apartment leasing business and modest personnel expense increases in the Companyâ€™s commercial property management business.

In 2012 and 2011, there were no sales of wholly owned apartment communities. The Company may be a seller of apartment communities in future periods depending on market conditions and consistent with its investment strategy of recycling investment capital to fund investment and development activities and to provide additional cash liquidity, as discussed in the â€śLiquidity and Capital Resourcesâ€ť section below. The timing and amount of future gain recognition will fluctuate based on the size and individual age of apartment communities sold.

In 2012 and 2011, gains on sales of real estate assets from condominium sales activities in continuing operations were $36,273 and $10,514, respectively. The condominium gains in 2012 include the impact of a $612 income tax benefit resulting from the carryback of net operating losses to recover income taxes paid in prior years. The increase in condominium gains between periods reflects the impact of increased unit closings, 96 closings in 2012 compared to 58 closings in 2011, the impact of improved profit margins at both condominium communities in 2012 and lower on-going condominium carrying costs. Condominium revenues increased by $31,754 between periods primarily due to the impact of increased unit sales discussed above. Profit margins improved primarily as a result of favorable revisions to the estimated timing and amount of estimated project revenues and costs as the sell-out process is approximately 86% complete at one community and 64% complete at the second community. Finally, on-going carrying costs are lower between periods as the remaining units owned by the Company have decreased, resulting in somewhat lower property tax and owners association expenses. See the â€śOperations Overviewâ€ť and â€śOutlookâ€ť sections for a discussion of expected condominium sale closings at the Companyâ€™s two luxury condominium communities for 2013.

Depreciation expense increased $4,882 or 6.5% from 2011 to 2012, primarily due to increased depreciation of $3,116 related to the two mixed-use communities acquired in December 2011 and July 2012, increased depreciation of $1,582 related to the completion of apartment units at three of the Companyâ€™s development and lease-up communities and increased depreciation related to the retail component of properties that were placed in service and partially leased up in 2011.

General and administrative expenses increased $242 or 1.5% from 2011 to 2012, primarily as a result of increased net personnel costs and expenses of $787 resulting from modest increases in compensation and estimated incentive plan accruals in 2012, higher income tax consulting expenses between years due to the timing of the services between years, increased costs associated with director transition in 2012 and increased civic and charitable contributions in 2012. These increases were somewhat offset by decreased legal and other professional fees of $1,143 due to higher legal expenses in 2011 related to construction litigation that was settled in 2012 and due to the general timing of legal and other professional fee expenses between years.

Investment and development expenses increased $156 or 13.4% from 2011 to 2012. In 2012, the capitalization of development personnel to development projects increased by $901 as the Company initiated and continued the development of seven apartment communities started in 2012 and in prior years. The increased development capitalization was more than offset by increased personnel and other costs of $1,057 to manage the increased development activity. As a result of the substantial completion of construction at three development communities in late 2012 and early 2013, the Company expects that the capitalization of development costs and expenses will decrease for 2013, which will result in increased investment and development expense in 2013.

Other investment costs decreased $34 or 2.4% from 2011 and 2012. Other investment costs primarily include land carry expenses, such as property taxes and assessments. The decrease in 2012 primarily reflects lower carry expenses as such costs were capitalized to communities placed under development in 2011 and 2012, offset somewhat by $299 of expenses associated with the acquisition of one apartment community and one parcel of development land in 2012 and by the write-off of $135 of development pursuit costs.

Interest expense decreased $10,372 or 18.3% from 2011 to 2012 primarily due to reduced interest rates on outstanding borrowings and increased interest capitalization in 2012. Gross interest expense decreased by $7,838 from 2011 to 2012 primarily due to the repayment of a $184,683, 6.09% secured mortgage note in the fourth quarter of 2011, $95,684 of 5.45% senior unsecured notes in June 2012, and the prepayment of $53,027 of 5.50% secured debt in October 2012 and $130,091 of 6.30% senior unsecured notes in December 2012, offset somewhat by increased bank term loan borrowings at an effective rate of approximately 3.4% (lowered to 3.2% in the fourth quarter of 2012) and interest on $250,000 of 3.375% of senior unsecured notes issued in November 2012. Increased interest capitalization on the Companyâ€™s development projects of $2,534 primarily related to interest capitalization on seven apartment communities under development in 2012 compared to five communities in the earlier stages of development in 2011. The Company expects interest expense for 2013 to be modestly lower than 2012 due primarily to reduced gross interest expense resulting from lower average interest rates, partially offset by decreased interest capitalization, as a result of the substantial completion of construction at three development communities in late 2012 and early 2013.

Equity in income of unconsolidated real estate entities increased from $1,001 in 2011 to $7,995 in 2012. The increase in 2012 is primarily due to the recognition of the Companyâ€™s portion of a gain, totaling $6,055, from the sale of an apartment community in Atlanta, Georgia at one of the unconsolidated entities, as well as the result of increased property net operating income from improved market conditions in 2012 and the improved profitability of one unconsolidated entity that refinanced its mortgage indebtedness at a lower interest rate in the first quarter of 2012.

In 2012 and 2011, other income (expense), net included estimated state franchise tax expense of $625 and $600, respectively. In 2012, other income (expense), net also included income of $1,554 related to the settlement of construction litigation at one of the Companyâ€™s apartment communities, income of $62 from the sale of a technology investment and income of $43 related to receivable recoveries. In 2011, other income (expense), net primarily included a state income tax benefit of $470 relating to the true-up of prior year tax provisions, income of $150 related to the settlement of construction litigation at one of the Companyâ€™s apartment communities, a gain of $475 from the sale of a technology investment and income of $123 related to receivable recoveries.
Annually recurring and periodically recurring capital expenditures increased $229 or 1.0% from 2011 to 2012. The decrease in periodically recurring capital expenditures of $337 primarily reflects the timing of capital projects between years. In 2012, decreases primarily reflect reduced water intrusion, structural improvements and window replacements at five apartment communities, partially offset by increased water intrusion and structural improvements at one apartment community and increased parking deck, tenant improvement and leasing commissions at an office property in 2012. The increase in annually recurring capital expenditures of $566 primarily reflects the timing of increased drainage/foundation/parki ng deck improvements, paving and HVAC equipment replacements at several apartment communities and one office property in 2012, partially offset by reduced siding and roofing expenditures at several communities in 2012.

Fully Stabilized (Same Store) Communities

The Company defines fully stabilized communities as those which have reached stabilization prior to the beginning of the previous year. For the 2012 to 2011 comparison, fully stabilized communities are defined as those communities which reached stabilization prior to January 1, 2011. This portfolio consisted of 50 communities with 18,114 units, including 13 communities with 5,407 units (29.8%) located in Atlanta, Georgia, 14 communities with 4,498 units (24.8%) located in Dallas, Texas, 6 communities with 2,301 units (12.7%) located in the greater Washington D.C. metropolitan area, 4 communities with 2,111 units (11.7%) located in Tampa, Florida, 4 communities with 1,388 units (7.7%) located in Charlotte, North Carolina and 9 communities with 2,409 units (13.3%) located in other markets.

Rental and other revenues increased $19,756 or 7.0% from 2011 to 2012. This increase resulted from a 6.2% increase in the average monthly rental rate per apartment unit and from a 0.4% increase in average economic occupancy between periods. The increase in average rental rates resulted in a revenue increase of approximately $17,301 between periods. Average economic occupancy increased from 95.6% in 2011 to 96.0% in 2012. The occupancy increase between periods resulted in lower vacancy losses of $332 in 2012. The remaining increase in rental and other property revenues of $2,123 was primarily due to somewhat higher net leasing and other fees and lower net concessions. Average rental rate and occupancy increases were primarily due to increasing rental demand resulting from a gradually improving economy, favorable demographics and a modest supply to date of new apartment communities. See the â€śOutlookâ€ť section below for an additional discussion of trends for 2013. The Company expects that rental revenues will continue to increase moderately on a year over year basis in 2013, continuing a trend that began in late 2010.

Property operating and maintenance expenses (exclusive of depreciation and amortization) increased $4,912 or 4.4% from 2011 to 2012. This increase was primarily due to increased property tax expenses of $5,479 or 14.8% and increased insurance expenses of $637 or 16.8%. These increases were offset primarily by decreased utility expenses of $649 or 3.8%, decreased advertising and promotion expenses of $477 or 11.9% and decreased maintenance expenses of $315 or 1.8%. The increase in property tax expense primarily reflects higher real estate valuations by tax authorities in most of the Companyâ€™s markets. Insurance expenses increased primarily due to higher property insurance rates upon the annual renewal of the Companyâ€™s insurance coverage in the second quarter of 2012 and somewhat higher net claim expenses in 2012. The decrease in utility expenses is due to $239 of sales tax refunds in the Companyâ€™s Texas markets resulting from the recovery of sales taxes on certain electric bills incurred in prior years and due to lower electric costs in certain Texas markets due to lower contract rates in 2012, somewhat offset by higher water and sewer charges due primarily to rate increases in the Atlanta, Georgia and Tampa, Florida markets. The decrease in advertising and promotion expenses primarily reflects reduced advertising expenditures and slightly lower apartment locator costs resulting from improved market conditions. Maintenance expenses decreased due to lower aggregate repair costs due to the timing of these costs between periods, offset somewhat by higher unit turnover costs on higher unit turnover in 2012.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Company overview

Post Properties, Inc. (the â€śCompanyâ€ť) and its subsidiaries develop, own and manage upscale multi-family apartment communities in selected markets in the United States. The Company through its wholly-owned subsidiaries is the sole general partner, a limited partner and owns a majority interest in Post Apartment Homes, L.P. (the â€śOperating Partnershipâ€ť), a Georgia limited partnership. The Operating Partnership, through its operating divisions and subsidiaries conducts substantially all of the on-going operations of the Company, a publicly traded corporation which operates as a self-administered and self-managed real estate investment trust (â€śREITâ€ť). As used herein, the term â€śCompanyâ€ť includes Post Properties, Inc. and its subsidiaries, including Post Apartment Homes, L.P., unless the context indicates otherwise.

The Company has elected to qualify and operate as a self-administrated and self-managed REIT for federal income tax purposes. A REIT is a legal entity which holds real estate interests and is generally not subject to federal income tax on the income it distributes to its shareholders. The Operating Partnership is governed under the provisions of a limited partnership agreement, as amended. Under the provisions of the limited partnership agreement, as amended, Operating Partnership net profits, net losses and cash flow (after allocations to preferred ownership interests) are allocated to the partners in proportion to their common ownership interests. Cash distributions from the Operating Partnership shall be, at a minimum, sufficient to enable the Company to satisfy its annual dividend requirements to maintain its REIT status under the Code.

At September 30, 2013, the Company had interests in 22,858 apartment units in 61 communities, including 1,471 apartment units in four communities held in unconsolidated entities and 1,620 apartment units in five communities currently under development or in lease-up. The Company is also selling luxury for-sale condominium homes in one community through a taxable REIT subsidiary. At September 30, 2013, approximately 31.1%, 22.3%, 13.7% and 9.9% (on a unit basis) of the Companyâ€™s operating communities were located in the Atlanta, Georgia, Dallas, Texas, the greater Washington, D.C. and Tampa, Florida metropolitan areas, respectively.

At September 30, 2013, the Company owned approximately 99.7% of the common limited partnership interests (â€śCommon Unitsâ€ť) in the Operating Partnership. Common Units held by persons other than the Company represented a 0.3% common noncontrolling interest in the Operating Partnership.

The discussion below is combined for the Company and the Operating Partnership as their results of operations and financial conditions are substantially the same except for the effect of the 0.3% weighted average common noncontrolling interest in the Operating Partnership.

Operations Overview

The following discussion provides an overview of the Companyâ€™s operations, and should be read in conjunction with the more full discussion of the Companyâ€™s operating results, liquidity and capital resources and risk factors reflected elsewhere in this Form 10-Q.

Property Operations

A relatively moderate supply of new apartment units, coupled with improving multifamily housing demand attributed to a gradually improving economy in the United States and favorable demographics, have contributed to improved apartment fundamentals in the Companyâ€™s markets since 2010. As a result, year-over-year same store revenues and net operating income (â€śNOIâ€ť) increased by 4.1% and 4.1%, respectively, in the first nine months of 2013, as compared to the first nine months of 2012. The Companyâ€™s operating results for the third quarter and first nine months of 2013 and its outlook for the remainder of 2013 are more fully discussed in the â€śResults of Operationsâ€ť and â€śOutlookâ€ť sections below. The Companyâ€™s outlook for the remainder of 2013 is based on the expectation that economic and employment conditions will continue to gradually improve. However, there continue to be significant risks and uncertainty in the economy and the unemployment rate continues to be higher than normal. If the economic recovery was to stall or U.S. economic conditions were to worsen, the Companyâ€™s operating results would be adversely affected. Furthermore, development of new multi-family rental units has continued to increase, and during the second half of 2013 and over time, the Company expects that this will increase the competitive supply of rental units in the markets in which it operates. This new supply has contributed to a moderation in the rate of rental income growth in recent quarters.

Acquisition Activity

In May 2013, the Company acquired Post Lakesideâ„˘, a 300-unit apartment community located in Orlando, Florida for a purchase price of approximately $48,500. The community was completed in 2013. In July 2012, the Company acquired Post South Endâ„˘, a 360-unit apartment community located in Charlotte, North Carolina for a purchase price of approximately $74,000. The community was completed in 2009, and also included 7,612 square feet of retail space. For the three months ended September 30, 2013 and 2012, operating results included revenues of $2,663 and $1,190 and net operating income of $1,712 and $765, respectively, from these two communities. For the nine months ended September 30, 2013 and 2012, operating results included revenues of $6,037 and $1,190 and net operating income of $3,936 and $765, respectively, from these two communities.

Disposition Activity

In October 2013, the Company completed the sale of an apartment community, containing 342 units, located in Atlanta, Georgia for gross proceeds of approximately $47,500. This community was classified as held for sale on the Companyâ€™s consolidated balance sheet at September 30, 2013. The Company expects to recognize a gain on sale of approximately $28,000 in the fourth quarter of 2013 from the sale of this community. The Company completed a reverse like-kind exchange for tax purposes. The gross proceeds realized from the sale are expected to be utilized consistent with the Companyâ€™s liquidity and balance sheet strategy discussed below.

Development Activity

In the first half of 2013, the Company substantially completed two apartment communities, containing 422 apartment units and approximately 19,621 square feet of retail space, and these communities achieved stabilized occupancy of 95%. In the third quarter of 2013, the second phase of Post Carlyle Squareâ„˘ in Washington D.C, consisting of 344 apartment units, achieved 95% stabilized occupancy and was 95.4% leased as of October 25, 2013, respectively. This community was substantially completed in the first quarter of 2013.

At September 30, 2013, the Company is currently developing five communities: (1) the third phase of its Post Lake Â® at Baldwin Park apartment community in Orlando, Florida, planned to consist of 410 luxury apartment units with a total estimated development cost of approximately $58,600, (2) the Post Parksideâ„˘ at Wade apartment community, which marks the Companyâ€™s first development in Raleigh, North Carolina, planned to consist of 397 apartment units, and approximately 14,908 square feet of retail space, with a total estimated development cost of approximately $55,000, (3) the Post Richmond Avenueâ„˘ apartment community in Houston, Texas, planned to consist of 242 apartment units with an estimated development cost of approximately $34,300, (4) the Post Soho Squareâ„˘ apartment community in Tampa, Florida, planned to consist of 231 apartment units and approximately 10,556 square feet of retail space with a total estimated development cost of approximately $39,800 and (5) the second phase of its Post Alexanderâ„˘ apartment community in Atlanta, Georgia, planned to consist of 340 apartment units with a total estimated development cost of approximately $75,500. As of October 25, 2013, the third phase of Post Baldwin Park Â® and Post Parkside at Wadeâ„˘ were 45.6% and 41.6% leased, respectively.

For the three months ended September 30, 2013 and 2012, operating results included revenues of $5,096 and $522 and net operating income (loss) of $2,762 and $(120), respectively, from these communities. For the nine months ended September 30, 2013 and 2012, operating results included revenues of $10,995 and $599 and net operating income (loss) of $5,068 and $(281), respectively, from these communities.

The square footage amounts are approximate and actual amounts may vary. The Company currently expects to utilize available cash, available borrowing capacity under its unsecured bank credit facilities, or other indebtedness and, from time to time, its at-the-market common equity sales program to fund future estimated construction expenditures.

In addition, the Company may commence development activities at more of its existing land sites over the next year or so. Management believes, however, that the timing of such development starts will depend largely on a continued favorable outlook for multi-family apartment rentals, capital markets conditions and the U.S. economy. Until such time as additional development activities commence or certain land positions are sold, the Company expects that operating results will be adversely impacted by costs of carrying land held for future investment or sale. There can be no assurance that land held for investment will be developed in the future or at all. Other than the impairment charge discussed below, the Company does not believe that any additional impairment exists at September 30, 2013. Should the Company change its expectations regarding the timing and projected undiscounted future cash flows expected from land held for future investment, or the estimated fair value of its assets, the Company could be required to recognize impairment losses in future periods.

Condominium Activity

In 2013, the Company had two luxury condominium development projects which began closing sales of completed units in 2010: The Ritz-Carlton Residences, Atlanta Buckhead (the â€śAtlanta Condominium Projectâ€ť), consisting of 126 units, and the Four Seasons Private Residences, Austin (the â€śAustin Condominium Projectâ€ť), consisting of 148 units. During the second quarter of 2013, the Company completed the sell-out of the Austin Condominium Project. The Company substantially completed the sell-out of the Atlanta Condominium Project in the third quarter of 2013, with only one unit remaining for sale as of September 30, 2013. The Company does not expect to further engage in the for-sale condominium business in future periods, other than with respect to completing the sell-out of the Atlanta Condominium Project. The Company has redeployed the invested capital from condominium activities back into its core apartment business.
The Companyâ€™s investment in for-sale condominium housing exposes the Company to additional risks and challenges, including warranty and related obligations, which could have an adverse impact on the Companyâ€™s business, results of operations and financial condition. See Item 1A, â€śRisk Factorsâ€ť in the Companyâ€™s Form 10-K for the year ended December 31, 2012 (the â€śForm 10-Kâ€ť) for a discussion of these and other Company risk factors. In prior years, due to adverse market conditions, the Company recorded impairment charges of $34,691 in 2010 and $80,225 in 2009 at these two luxury condominium projects. At September 30, 2013, the Companyâ€™s investment in the Atlanta Condominium Project totaled $1,122 as reflected on its consolidated balance sheet.

Severance, Impairment and Other Expenses

Severance, impairment and other expenses in 2013 included severance charges of $989 related to the departure of an executive officer and a non-cash impairment charge of $400 to write-down to fair value a parcel of land held for future investment (see note 8 to the consolidated financial statements). In connection with the executive officerâ€™s departure discussed above, the Company also realigned the executive responsibilities in the Companyâ€™s investment group. The Company also recognized expenses of approximately $281 related to the start of a strategic initiative to upgrade the Companyâ€™s operating and financial software systems and estimated casualty losses of $311 related to fire damage sustained at one of the Companyâ€™s Charlotte, North Carolina communities. The casualty losses were beneath the Companyâ€™s insured deductibles.

Results of operations

The following discussion of results of operations should be read in conjunction with the consolidated statements of operations and the community operations/segment performance information included below.

The Companyâ€™s revenues and earnings from continuing operations are generated primarily from the operation of its apartment communities. For purposes of evaluating comparative operating performance, the Company categorizes its operating apartment communities based on the period each community reaches stabilized occupancy. The Company generally considers a community to have achieved stabilized occupancy on the earlier to occur of (1) attainment of 95% physical occupancy on the first day of any month or (2) one year after completion of construction.

For the three and nine months ended September 30, 2013, the Companyâ€™s portfolio of operating apartment communities, excluding four communities held in unconsolidated entities, consisted of the following: (1) 50 communities that were completed and stabilized for all of the current and prior year, (2) two communities acquired in 2013 and 2012 and (3) two communities and portions of three communities in lease-up in 2012 and 2013. These operating segments exclude the operations of one apartment community classified as discontinued operations.

The Company has adopted an accounting policy related to communities in the lease-up stage whereby substantially all operating expenses (including pre-opening marketing and management and leasing personnel expenses) are expensed as incurred. During the lease-up phase, the sum of interest expense on completed units and other operating expenses (including pre-opening marketing and management and leasing personnel expenses) will initially exceed rental revenues, resulting in a â€ślease-up deficit,â€ť which continues until such time as rental revenues exceed such expenses. Lease-up deficits for the three and nine months ended September 30, 2013 were $380 and $1,634, respectively. Lease-up deficits for the three and nine months ended September 30, 2012 were $801 and $1,074, respectively. The Company expects to incur lease-up deficits for the remainder of 2013 at lease-up communities, as the Company continues to deliver completed apartment units.

In order to evaluate the operating performance of its communities for the comparative years listed below, the Company has presented financial information which summarizes the rental and other revenues, property operating and maintenance expenses (excluding depreciation and amortization) and net operating income on a comparative basis for all of its operating communities and for its stabilized operating communities. Net operating income is a supplemental non-GAAP financial measure. The Company believes that the line on the Companyâ€™s consolidated statement of operations entitled â€śnet incomeâ€ť is the most directly comparable GAAP measure to net operating income. Net operating income is reconciled to GAAP net income in the financial information accompanying the tables. The Company believes that net operating income is an important supplemental measure of operating performance for a REITâ€™s operating real estate because it provides a measure of the core operations, rather than factoring in depreciation and amortization, financing costs and general and administrative expenses. This measure is particularly useful, in the opinion of the Company, in evaluating the performance of geographic operations, operating segment groupings and individual properties. Additionally, the Company believes that net operating income, as defined, is a widely accepted measure of comparative operating performance in the real estate investment community.

All operating communities

Fully stabilized communities

The Company defines fully stabilized communities as those which have reached stabilization prior to the beginning of the previous year, adjusted by communities classified as held for sale. For the 2013 to 2012 comparison, fully stabilized communities are defined as those communities which reached stabilization prior to January 1, 2012. This portfolio consisted of 50 communities with 17,999 units, including 12 communities with 5,065 units (28.1%) located in Atlanta, Georgia, 15 communities with 4,725 units (26.3%) located in Dallas, Texas, 6 communities with 2,301 units (12.8%) located in the greater Washington D.C. metropolitan area, 4 communities with 2,111 units (11.7%) located in Tampa, Florida, 4 communities with 1,388 units (7.7%) located in Charlotte, North Carolina and 9 communities with 2,409 units (13.4%) located in other markets.

Comparison of three months ended September 30, 2013 to three months ended September 30, 2012

The Operating Partnership reported net income available to common unitholders of $18,099 for the three months ended September 30, 2013, compared to $21,345 for the three months ended September 30, 2012. The Company reported net income available to common shareholders of $18,051 for the three months ended September 30, 2013, compared to $21,285 for the three months ended September 30, 2012. As discussed below, the decreased income between periods primarily reflected decreased gains on condominium sales between periods, as well as severance, impairment and other expenses in 2013, partially offset by increased net operating income from fully stabilized communities and increased net operating income from lease-up and acquisition communities.

Rental and other revenues from property operations increased $8,162 or 9.6% from 2012 to 2013 primarily due to increased revenues from the Companyâ€™s fully stabilized communities of $2,433 or 3.2%, increased revenues of $4,574 from lease-up communities and increased revenues of $1,473 from the acquisition of apartment communities in July 2012 and in May 2013. The revenue increase from fully stabilized communities is discussed in more detail below. The revenue increase from lease-up communities reflects the lease-up of portions of five communities as apartment units were completed beginning in mid-2012 and into 2013.

Property operating and maintenance expenses (exclusive of depreciation and amortization) increased $3,410 or 9.3% from 2012 to 2013 primarily due to increases from fully stabilized communities of $1,108 or 3.7%, increases of $1,692 from lease-up communities and increases of $526 from the acquisition of apartment communities in July 2012 and in May 2013. The increased expense from fully stabilized communities is discussed in more detail below. The expense increase from lease-up communities reflects the operating expenses and initial personnel and marketing costs associated with the lease-up of portions of five development communities that began delivering apartment units in mid-2012.

For the three months ended September 30, 2013 and 2012, there were no sales of wholly owned apartment communities. At September 30, 2013, the Company classified one apartment community as held for sale and the sale was subsequently closed in October 2013 for gross proceeds of $47,500 with an estimated gain of approximately $28,000. The Company may be a seller of apartment communities in future periods depending on market conditions and consistent with its investment strategy of recycling investment capital to fund investment and development activities and to provide additional cash liquidity, as discussed in the â€śLiquidity and Capital Resourcesâ€ť section below. The timing and amount of future gain recognition will fluctuate based on the size and individual age of apartment communities sold.

For the three months ended September 30, 2013 and 2012, gains on condominium sales activities were $5,293 and $10,261, respectively. The decrease in condominium gains between periods primarily reflects the impact of fewer closings between years, partially offset by lower on-going condominium carrying costs and improved profit margins between years. Condominium revenues decreased $10,967 between years primarily due to decreased closings of 12 units in 2013 compared to 24 units in 2012. All condominium closings in the three months ended September 30, 2013 were at the Atlanta Condominium Project, as the Austin Condominium Project was sold out at June 30, 2013. As a result, profit margins were generally higher in 2013 as profit margins were higher at the Atlanta Condominium Project. On-going carrying costs were lower between periods as the remaining units owned by the Company have decreased significantly since the third quarter of 2012 resulting in lower property tax and owners association expenses.

Depreciation expense increased $1,444 or 7.2% from 2012 to 2013, primarily due to increased depreciation of $1,331 related to the completion of apartment units at five development and lease-up communities beginning in mid-2012 and $427 related to the two communities acquired in July 2012 and May 2013, partially offset by decreased depreciation at fully stabilized communities of $384 due to the cessation of depreciation on certain fully depreciated short-lived assets at certain communities developed and acquired over the last few years.

General and administrative expenses increased $316, or 8.4%, from 2012 to 2013 primarily as a result of increased net personnel costs, resulting primarily from increases in long-term incentive plan expense in 2013, and increased annual incentive plan accruals in 2013, resulting primarily from the timing of expense recognition between years.

Investment and development expenses increased $164 or 80.8% from 2012 to 2013. In 2013, the capitalization of development personnel to development projects decreased by $236 due to the reduction of development capitalization at three development communities that were substantially complete as of December 31, 2012, partially offset by increased capitalization at two development communities that commenced in mid-2012 and in 2013. Additionally, development personnel and other costs decreased by $72 between years. The Company expects to continue to complete portions of its existing development pipeline in 2013. The Company expects that the capitalization of development costs and expenses will decrease for the full year 2013, which will result in increased net investment and development expenses for the full year 2013.

Other investment costs decreased $129 from 2012 to 2013. Other investment costs primarily include land carry expenses, such as property taxes and assessments. Other investment costs in 2013 included $145 of acquisition costs associated with 2013 acquisition activities. Other investment costs in 2012 included $139 of expenses associated with the acquisition of an apartment community in July 2012 and the write-off of $135 of development pursuit costs.
Severance, impairment and other in 2013 included severance charges of $989 related to the departure of an executive officer and a non-cash impairment charge of $400 to write-down to fair value a parcel of land held for future investment (see note 8 to the consolidated financial statements). The Company also recognized expenses of approximately $281 related to the start of a strategic initiative to upgrade the Companyâ€™s operating and financial software systems and estimated casualty losses of $311 related to fire damage sustained at one of the Companyâ€™s Charlotte, North Carolina communities. The casualty losses were beneath the Companyâ€™s insured deductibles.

Interest expense decreased $532 or 4.5% from 2012 to 2013 primarily due to decreased gross interest costs, somewhat offset by reduced interest capitalization in 2013. Gross interest expense decreased by $920 due primarily to reduced weighted average borrowing costs between years. Weighted average borrowing costs were lower in 2013 due to the prepayment of $53,027 of 5.50% secured debt in October 2012 and $130,091 of 6.30% senior unsecured notes in December 2012, offset somewhat by increased interest on $250,000 of 3.375% of senior unsecured notes issued in November 2012. Decreased interest capitalization on the Companyâ€™s development projects of $388 primarily related to the substantial completion of three apartment communities in 2012 and early 2013. The Company expects interest expense for the full year of 2013 to be somewhat lower than in 2012 due to debt refinancing activities in 2012 that lowered the Companyâ€™s overall weighted interest costs, partially offset by reduced interest capitalization to development projects.

Equity in income of unconsolidated real estate entities increased $181 or 38.1% from 2012 to 2013 primarily due to the timing of increased cash flow distributions of earnings from one apartment community in Washington, D.C. in 2013 and due to prior and current year property tax savings recognized at several communities in 2013.

For the three months ended September 30, 2013 and 2012, other income (expense) included estimated state franchise taxes.

Annually recurring and periodically recurring capital expenditures increased $212 or 3.1% from 2012 to 2013. The increase in periodically recurring capital expenditures of $667 primarily reflects the timing of water intrusion remediation projects and structural improvements at three communities, fire sprinkler system replacement work at another community in 2013 as well as tenant improvements and commissions at two mixed-use properties in 2013. For the full year 2013, the Company expects periodically recurring capital expenditures to be significantly higher than 2012 primarily due to the projects discussed above as well as tenant improvements and commissions at certain mixed-use properties. The decrease in annually recurring capital expenditures of $455 primarily reflects decreased parking deck, paving, building foundation and energy management system projects, partially offset by increased water heater replacements due to the timing of projects at several communities between periods. For the full year 2013, the Company expects annually recurring capital expenditures to be somewhat lower than 2012 primarily due to fewer parking deck improvement projects and reduced energy management system expenditures in 2013.
Fully stabilized communities

Rental and other revenues increased $2,433 or 3.2% from 2012 to 2013. This increase resulted from a 3.4% increase in the average monthly rental rate per apartment unit, partially offset by a 0.3% decrease in average economic occupancy between periods. The increase in average rental rates resulted in a revenue increase of approximately $2,538 between periods. Average economic occupancy decreased slightly from 96.6% in 2012 to 96.3% in 2013. The occupancy decrease between periods resulted in higher vacancy losses of $385 in 2013. The remaining increase in rental and other property revenues of $280 was primarily due to somewhat higher net leasing and early termination fees and lower net concessions. Average rental rate increases were primarily due to increasing rental demand resulting from a gradually improving economy, favorable demographics and a moderate, but increasing, supply of new apartment communities. The Company expects that rental revenues will increase moderately on a year over year basis for the full year 2013, continuing a trend that began in late 2010. Average occupancy rates declined slightly between periods due to increased competition from new apartment communities in certain markets. The Company continues to focus on maintaining rent growth in 2013 while also maintaining a rent structure that enables average economic occupancy rates to remain relatively in line with the prior year. See the â€śOutlookâ€ť section below for an additional discussion of trends for 2013.

Property operating and maintenance expenses (exclusive of depreciation and amortization) increased $1,108 or 3.7% from 2012 to 2013. This increase was primarily due to increased property tax expenses of $1,000 or 9.0%, increased repairs and maintenance expenses of $385 or 8.9% and increased insurance expenses of $199 or 19.1%. These increases were partially offset by decreased personnel expenses of $481 or 7.0%. The increase in property tax expenses primarily reflects increased expense accruals in 2013 due to higher real estate valuations by tax authorities in most of the Companyâ€™s markets. The increase in repairs and maintenance expenses is primarily due to higher turnover expenses, somewhat higher exterior paint expenses and higher structural and equipment repair expenses due to the timing of these expenses between years. Insurance expenses increased primarily due to higher property insurance premiums upon the annual renewal of the insurance coverage in the second quarter of 2013. The decrease in personnel expenses is primarily due to efficiencies gained in personnel utilization at three communities that began operating additional phases beginning in mid-2012 as well as somewhat lower bonus accruals between years as net operating income growth has slowed. See the â€śOutlookâ€ť section below for a discussion of expense trends for 2013.

CONF CALL

David P. Stockert - Chief Executive Officer, President and Director
Thank you, Sarah, and good morning. This is Dave Stockert. With me are Chris Papa, our CFO; and Jamie Teabo, Head of Property Management. Welcome to Post Properties third quarter earnings call.

Statements made on this call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated, including those discussed in the Risk Factors section of our 2002 (sic) [2012] annual report on Form 10-K. Forward-looking statements are made based on current expectations, assumptions and beliefs, as well as information available to us at this time. Post Properties undertakes no obligation to update any information discussed on this conference call.

During this call, we will discuss certain non-GAAP financial measures. Reconciliations to comparable GAAP financial measures can be found in our earnings release and supplemental financial data. I'll now begin the business of this call with brief comments, and then we'll go right to Q&A.

There are a few main points I want to highlight about the quarter. First, year-over-year revenue growth slowed modestly more than we had forecast. But the trajectory of apartment fundamentals is not different than how we have been viewing and talking about the business for some time. We ran the portfolio this quarter to sustain high average occupancy, producing good sequential revenue growth and positioning the portfolio well for the following winter leasing season.

Longer term, there is reason to remain optimistic about apartment fundamentals. The housing market, taken as a whole, is very much in balance. There are pent-up households that should form as the economy continues to add jobs. Construction cost pressure is real and is affecting development in a number of markets, and there is evidence of slowing multifamily start activity. All of this can set the stage for a longer run of healthy fundamentals.

Second point I want to make about the quarter is that we were, again, able to translate top line revenue growth from both the same-store assets and our development pipeline into bottom line core FFO growth of more than 10%, even after more than $0.03 of charges.

We are sustaining good overhead cost discipline in managing our balance sheet and capital allocation, so as not to dilute the cash flow and earnings growth we generate out of the portfolio.

As to capital recycling, we were thrilled with the price we achieved for Post Renaissance. This 20 year old property was aggressively bid with roughly 20 first round offers, 9 best and final bids and 4 third round bids. The response to the offering was significantly in excess of what both we and our selling brokers expected, both the price and the cap rate were better than we expected. And were better than what we carried at any time in the past 5 years for Post Renaissance in our internal net asset valuation. The price per square foot matched the price we paid for the brand new Post Lakeside we acquired in the second quarter in Orlando.

Post Portfolio is the most consistently Class A of any in the sector. While I can't say that cap rates might not increase in the future for Post quality assets, the price for Post Renaissance suggests that, that it is not the case today. And I feel confident that our assets will continue to be more desirable to a broader pool of buyers than those assets of lesser overall quality or location.

We are running our balance sheet to maintain capacity to act on opportunities. We used some of that capacity for what we saw was an attractive opportunity in the stock during the quarter.

We still maintain plenty of cash flow and cash on hand to meet our investment commitments. As we move through this current phase of the apartment cycle, we'll continue looking for ways to demonstrate the value of the portfolio and of the company.

That concludes our prepared remarks. Operator, please open the phone lines to Q&A.